TONG CHOR YIN AUGUSTINE t/a AUGUSTINE C.Y. TONG & CO., SOLICITORS & NOTARIES v. FORTUNE CONCEPT GROUP LTD

HCA160/2008
& HCA293/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 160 OF 2008

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(HEARD TOGETHER)

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D E C I S I O N

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1. This is a landlord and tenant dispute in which the landlord seeks summary judgment pursuant to this Order 14 summons.  The matter has become somewhat confused because there are parallel proceedings in which the parties’ roles are reversed.  Fortune Concept is the landlord and Tong Chor Yin, Augustine is the tenant in both actions.  Fortune Concept only became the landlord on 30 April 2007 by virtue of an assignment from the previous owner, who was the previous landlord.  Hereafter, I shall refer to the parties as “landlord” and “tenant”.

2. The tenant’s tenancy, signed with the previous landlord ran from 1 February 2005 to 31 January 2008.  By Clause 2(1a), the tenant agreed :

“(1a)   To pay to the Landlord in advance on the 1^st day of each and every calendar month management and air-conditioning charges at the rate of $20,755.84 per calendar month or at such other rates as may from time to time be chargeable by the management company of the said building.”

3. At Clause 9, the agreement contained an option to renew in the following terms :

“9.   If the Tenant shall be desirous of continuing the tenancy of the said premises for a further term of three years at the expiration of the term hereby granted and shall on or before the 31^st day of July 2007 give to the Landlord a notice in writing of such his desire and shall have paid the rent hereby reserved and performed the several stipulations herein contained and on his part to be observed up to the termination of the term hereby created then the Landlord will let the said premises to the Tenant for a further term of three years from the 1^st day of February 2008 at an increased rent of $33,000.00 per month (exclusive of Rates) (hereinafter called ‘the said new rental’) and subject in all other respects to the same stipulations as are herein contained except the present clause for renewal.”

4. In passing it may be noted that both the old rent ($30,000 per month) and the proposed new rent ($33,000 per month) are bizarrely low.  A valuation report suggests the true market rent would be in the region of $180,000 per month.  No explanation has been advanced as to why the previous landlord and the tenant reached this agreement.  The new landlord accepts however, that in the normal course of events he would be bound by it.

5. The landlord’s claim for summary judgment is based on three arguments, as follows.

1.  The tenant has lost his entitlement to exercise the option to renew under Clause 9

6. Clause 9 requires the tenant to have “performed the several stipulations herein …”.  It is necessary to consider the tenant’s position as at 31 July 2007 which was the last day upon which the option to renew could have been exercised.  The landlord submits that there can be no argument but that, on that day, the tenant was one month in arrears of his obligation to pay management fees under Clause 2(1a) and that prior to 31 July the tenant’s record for timeous payments of the management fees was poor.  The tenant had been consistently late in making the payments.  These submissions are factually correct and not in dispute.

7. The tenant’s explanation is that he was in a dispute with the landlord about the reasonableness of the fees.  In the context of this case I found that explanation to be irrelevant.  The relevant factor is that the tenant had undertaken to pay a particular monthly sum and, on several occasions had failed to do so on time (the lateness was not ‘de minimus’) and on 31 July was in arrears.

8. The tenant must have considered the monthly fees to be within reasonable bounds in February 2005 when he signed the lease.  He would not have signed otherwise.  Moreover, after signing the fee was in fact reduced by about $2,000 a month.  Given that the agreed rent appears to be (possibly) less than 25% of the market rent, it is perhaps not surprising that he signed up.

9. It is not open to the tenant to say that his breach of Clause 2(1a) should have no effect on his entitlement under Clause 9.  The mere existence of a dispute does not change the tenant’s obligations.  Although the merits of the dispute have little or no relevance, it is worthy of note that if the tenant’s complaint was truly about the reasonableness of the quantum of the fees, it is puzzling why the manner of his protest was to pay the full amount late, rather than by paying a lesser amount on time.  Moreover, although the payments were consistently late throughout 2007, there is nothing in writing to indicate that the tenant had made a complaint about the level of the fees until mid July 2007.

10. Although the fees for the early months of the year were eventually paid and therefore it could be said that those breaches had been remedied the fact remains that as of 31 July 2007, the tenant (a) was in arrears and (b) had a history of being an unreliable payer.  The obvious logic behind the condition precedent requiring a tenant to “perform the several stipulations” before being entitled to exercise the option to renew is that it gives the landlord the right to refuse to continue with a tenant who is unreliable or is in arrears.

11. The tenant, additionally, takes a pleading point in its attempt to resist the Order 14 application under this heading.  The tenant argues that in the action under which this application is made (HCA293/2008) the breach of condition is not pleaded.  It is only pleaded in the defence of the parallel action (HCA160/2008).

12. This submission is without merit for a number of reasons.  First, the two actions concern exactly the same subject matter and issues.  In HCA293/2008 the landlord pleads “The plaintiff intends to and will forthwith apply for consolidation of these proceedings with Action 160” (and rightly so).  Moreover by paragraphs 7 and 8 of the claim in HCA293/2008, the landlord says, in effect, “without prejudice to our contention that the tenant has failed to comply with Clause 9 the landlord avers that the tenant has denied the landlord’s title to the premises …” (a reference to the 3^rd ground for judgment under Order 14 infra).  It is erroneous to argue, as does the tenant, that “the landlord cannot rely on allegations made in the other action” when, in fact, the two actions are indistinguishable, ripe for consolidation and contain specific cross-references.

13. In short, I am satisfied that the landlord has made good the argument that the tenant has, unarguably, lost its entitlement to exercise the option to renew. 

14. This finding makes Grounds 2 and 3 superfluous.  I will however deal with them both, briefly.

2.  In any event, on the known facts, the tenant failed to comply with Clause 9

15. On 18 December 2007, five months after the 31 July deadline, the tenant’s solicitors wrote a letter in which it was stated that they wished to renew the tenancy.  No reference was made in that letter to any suggestion that the option had already been properly complied with before the deadline.

16. The next day, 19 December 2007, the tenant wrote saying “… we have located copy of a letter dated 15 February 2007 …”.  The letter was enclosed and purported to be a notice of renewal addressed to the previous owners.  The landlord says the notice was never sent and never received.

17. In short, I do not think the tenant’s contention that the option was applied for in February, can be dismissed at this stage.  Had this been the sole issue summary judgment would not have been granted.  Although, the landlord can point to documentary evidence which may be consistent with its case, it would ultimately be a question of fact to be determined after hearing evidence.  But even if it was applied for in February, it does not affect the landlord’s first ground.  The landlord can rely on the situation as at 31 July to decline the option to renew.

3.   Denial of landlord’s title?

18. By paragraph 13 of HCA160/2008, the tenant (the plaintiff in that action) pleaded.

“Further, the Plaintiff avers that the Defendant is not the legal and equitable owner of the premises.”  

19. By paragraph 9 of the same claim it went further and pleaded that there was a specific rival claimant to the title.  These paragraphs are relied on by the landlord in its action (HCA293/2008) and cited therein prior to the following plea.

“In the premises the Plaintiff [landlord] is entitled to forfeit the New Lease and by the service of these proceedings the New Lease is forfeited by the Plaintiff.” 

20. In other words, the landlord was accepting the tenant’s repudiation of the tenancy and bringing it to an end.  These pleadings were filed in February 2008.

21. It seems to me that the tenant has made a clear and unequivocal denial of title.  The tenant’s contention that the court may regard it as merely “an intention to submit the matter to the court” is a hollow resistance.

22. However, the tenant, through its pleadings and written skeleton makes a further point.  The original pleading was in January/February 2008.  The landlord’s Order 14 summons was issued in April 2008.  Then, on 15 July 2008, one week before this hearing, the tenant issued a summons to amend the pleadings by deleting the paragraphs which deny the landlord’s title.  This must be, at the very least, a recognition of the difficulties they face by their inclusion.

23. Whilst the landlord accepts the correctness of the deletions, it submits that as far as their denial of title argument is concerned, it comes too late and does not assist the tenant.  Reliance is placed on Clark v. Dupre [1991] 3 WLR 579 from which the following citations are taken :

“  In my judgment the amendments to the statement of claim does not improve Dupre’s position.  Dupre is still asserting that Clark did not have the ability to demise the courtyard because N.M.F.P. were the owners of the courtyard, and, implicitly, as much were the only people able to demise it.  The amendments have, I think, achieved nothing.

   But if I were wrong about that I do not consider that the amendments would have ‘saved’ Dupre in any event, because when the amendment was made, Clark had already irrevocably accepted the repudiation by issuing proceedings for possession.  Serving proceedings for possession in such circumstances is equivalent to actual entry upon the premises : …”

Later,

“Once proceedings for possession have been served the tenant’s position cannot be improved by any subsequent amendment … If the landlords had been able to effect re-entry after the disclaimer and before the amendment, even for a short period of time, then I do not believe that the amendment could have availed the tenant.  Service of proceedings for possession are intended to put the landlord, so far as possible, into at least as good a position as he would have been in if he had resorted to self-help.”

And per curiam :

“…  If the tenant’s disclaimer had amounted to a denial of the landlord’s title, an amendment to the tenant’s pleading to avoid that contention would not have saved its position because when the amendment was made the landlord had already irrevocably accepted the repudiation by issuing proceedings for possession which is equivalent to actual entry upon the premises …”

24. I agree that regardless of the summons to amend the unequivocal denial of title is fatal to the tenant’s cause.  The landlord’s application for summary judgment should succeed on both factual and legal grounds.

25. With a final throw of the dice, the tenant submits that the Order 14 should fail because it has an arguable case in law that section 58 of the Conveyancing and Property Ordinance, Cap. 219 defeats the landlord’s claim.  This argument is not alluded to in any pleading nor did it form part of the tenant’s written skeleton argument.

26. Section 58 provides that :

“(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice-

   …”

27. No notice has been served.

28. The simple answer is that this lease has come to an end by effuxion of time.  The alleged breach of condition by the tenant was not a breach which brought the tenancy to an end, it was a breach which disqualified the tenant from exercising an option to renew.  Once the option had gone the lease came to an end at the end of its three-year term.

29. Section 58 has no application.

30. Paragraphs (1) and (4) of the landlord’s summons dated 2 April 2008 are granted.  No order is made in respect of paragraphs (2), (3) and (5).